A taxing situation in Europe

Oct. 9, 2000
As retail gasoline prices rose this past summer, European consumers united in protests to air their frustrations over fuel taxes. Although their tactics were questionable, their goal was admirable.

As retail gasoline prices rose this past summer, European consumers united in protests to air their frustrations over fuel taxes. Although their tactics were questionable, their goal was admirable.

Farmers, truckers, taxi drivers, and commercial fishermen, who saw transportation costs eat into their profits, blocked refineries and oil terminals in the UK, France, Belgium, Italy, the Netherlands, and Germany. The adrenaline eventually reached consumers in Poland and Ireland.

Such scenes against fuel prices are unusual in Europe, a continent infamous for its high taxes and high fuel prices. They were reminiscent of the 3-mile US truck convoy that protested in Washington, DC, in February, complaining about soaring diesel prices. US consumers have since gotten used to the talk of shortages and high prices, however, and so it is Europe's turn.

And the Europeans have grabbed the baton with flair. They stopped the flow of feed and products to and from several refineries, protesting fuel taxes, grabbing the headlines of newspapers across the world.


Last year at this time, US consumers were paying an average of $1.23/gal for conventional unleaded gasoline. Today, they are paying $1.57, a 28% increase.

Of this $1.57, about 40¢/gal, or 25% of the retail price, is state and federal taxes. These taxes go to the Highway Trust Fund, which builds and maintains US roads and bridges.

In contrast, gasoline and diesel taxes in Europe account for about 60% of the retail price in Ireland and over 75% in England.

According to statistics from the International Energy Agency, the August price of unleaded premium gasoline rose by 7.7% in the UK in the past year, from £0.729/l. to £0.785/l.

Italy and Spain both saw 12.4% increases in their retail gasoline prices. France experienced a price increase of 13.9%.

Poten & Partners, shipping and commodity brokers in New York, recently pointed out that European fuel taxes have a different purpose than US taxes. They discourage the use of fuels and support an extensive social welfare system.

The Organization of Petroleum Exporting Countries and some consumers blame the government for the spike in fuel prices. Most governments, however, are blaming OPEC. Although OPEC influences the price of crude oil, it may not have the ability to rescue the retail industry, as governments would like to believe.

In mid-September, OPEC released a statement encouraging consumers to blame their taxing governments for the high prices of petroleum products. OPEC pointed out that European governments make more in revenues than the organization gets for producing oil. It said, "In the European Union, for example, only about 16% of the revenue from a barrel of refined oil goes to oil exporters, about 16% to refiners and marketers, whilst the government take averages 68%."

European consumers heeded this advice and took to the streets.


There is an element of irony in the protests that observers cannot miss.

In getting the attention of their respective taxing governments, protesters staged events that blocked the flow of oil. They reduced the ability of refiners to get their raw materials to make refined products and the ability to get their products to the retail outlets for which they were destined, leaving many service stations dry.

Certainly, these blockades did not lower any prices; if anything, following supply and demand rules, prices should increase upon perception of a shortage of gasoline. Nor did these protests address the source of the taxes being protested: the government.

It would have been more appropriate to go to the source of the taxes, to stage protests in front of government offices, but impeding business and endangering supply often attracts more satisfactory attention (see Watching the World, p. 30).

Some success

Despite the chaos generated by protests, depending on who you are, some relatively good things came about.

For one, about 19,000 students didn't have to go to school in Wales last month because school buses did not have enough gasoline. (Good for the students, at least, in the sense of being an unexpected holiday.)

In the UK, although the government did not give in to a 60-day ultimatum to lower fuel taxes, it did not rule out fuel-duty rebates or cuts in the vehicle tax for truckers.

Likewise, Finland's government resisted lower fuel taxes but agreed to reduce the road tax. Belgium offered cuts in road, insurance, and social taxes. Germany is also looking for alternative tax breaks.

Protesters have been most successful with the French, Italian, and Dutch governments, which have agreed to lower fuel taxes.

The lack of a consistent game plan in response to consumer demands among countries in the EU is a source of embarrassment. Although the EU governments may be disunited, however, their people aren't. High fuel prices have brought its citizens closer together.

The picket lines and blockades in the past month reveal that the European consumers are united in one belief, formerly thought to exist only among Americans: the inalienable right to affordable gasoline.